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Global equities were poised to close out their best week of the year on Friday, as investors shook off a recent bout of concern that the US economy is heading for a recession.
Stocks around the world have rebounded sharply from their early-August slump, buoyed by a reassuring run of US economic data showing falling inflation and resilient consumer spending.
Wall Street’s S&P 500 index has climbed 3.6 per cent this week — on course for the best showing since last November — despite a marginal dip in morning trading on Friday.
“A lot of the fear and trepidation has been taken out,” said Joe Mazzola, head trading and derivatives strategist at Charles Schwab. “The data are showing that the US economy is slowing, but that’s to be expected two years into a rate-hike cycle. It’s just when it starts to actually manifest itself, people get nervous.”
The S&P 500 has recovered all of its August losses, which had been worsened by a weak jobs report that sparked recession fears. The blue-chip benchmark is now only 2.2 per cent below its July all-time high.
The Stoxx Europe 600 index was up 0.2 per cent on Friday and 2.4 per cent this week. Japanese stocks — which bore the brunt of the global sell-off at the start of August — climbed 3 per cent to take their weekly gain to 7.9 per cent.
The MSCI World index of global developed market stocks is also on track for its best week since early November, having climbed 3.5 per cent this week.
The market recovery comes as data this week suggested that the US economy was holding up better than had been feared. Inflation figures on Wednesday showed annual consumer price rises eased below 3 per cent for the first time since March 2021 while, on Thursday, strong US retail sales and lower-than-expected new jobless claims boosted investor confidence.
“The moves over the last couple of weeks demonstrate how market narratives can swing based on single data points and we could see more volatility ahead,” said Wei Li, global chief investment strategist at BlackRock.
Li added that US equity markets were recovering from an overreaction to fears of a recession and that, despite “periodic bouts of market jitters”, the asset manager remained positive on the tech sector, which was among the worst-hit during the rout.
Falling inflation has cemented investors’ expectations for multiple Federal Reserve interest rate cuts this year, although this week they pared back bets on more aggressive easing as market sentiment steadied.
On Friday, Fed funds futures implied a reduction in US borrowing costs just short of one percentage point by December. At the height of the sell-off last week, investors had bet that the central bank would deliver at least another quarter-point above that.
US two-year bond yields, which closely track rate expectations, have risen to 4.1 per cent on Friday, up 0.44 percentage points from their recent low on August 5. Yields move inversely to prices.
The recalibration of rate expectations comes ahead of the Kansas City Fed’s annual monetary policy conference in Jackson Hole, Wyoming, next week, where Fed chair Jay Powell is expected to offer further clues about the path of monetary policy.
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